Provisional translation

Press Conference by Shoichi Nakagawa, Minister of Finance and Minister for Financial Services

(Excerpt)

October 28, 2008

[Opening Remarks by Minister Nakagawa]

I do not have anything particular to report to you about today’s cabinet meeting.

However, I would like to mention one matter. Yesterday, I said that a ban on the naked short selling of stocks (a practice of selling stocks short without borrowing the stocks first) will be introduced on the first trading day of November as a measure to stabilize the stock market. Later, based on an instruction from the Prime Minister, I have made a new decision, which I will now explain to you. We will immediately start investigating the status of the enforcement of the restrictions on short selling to identify illegal activities. The FSA (Financial Services Agency) will cooperate with the Securities and Exchange Surveillance Commission and the TSE (Tokyo Stock Exchange) in doing this. If the investigation finds past cases of illegal activities, we intend to punish the offenders retroactively. In addition, we will introduce a restriction on naked short selling today, although formal procedures such as a cabinet decision and the issuance of a cabinet order will take some time. As an emergency step for the interim period, the TSE will request member securities companies to refrain from taking orders related to naked short selling.

[Questions and Answers]

Q.

Regarding the restriction on short selling, you said that the offenders will be punished retroactively. How far do you intend to look back in time for violations to apply punishments to?

A.

As this concerns violations of law, it is impossible to go back beyond the statute of limitations. In any case, we will punish past cases of violation, as the Prime Minister and I decided at an emergency meeting this morning.

Q.

Why did you decide to bring forward the date of the introduction of the tightened restriction?

A.

Although we announced measures to stabilize the market yesterday, stock prices dropped about 8%. Conducting strict investigation as to whether there is any illegal activity is a quite natural thing to do, and we will now do it retroactively against the background of the stock plunge. As the United States and Europe have already prohibited naked short selling, Japan has lagged behind them by several days in this respect. The Prime Minister and I held talks early this morning and agreed that the coming several days are a crucial and critical period for Japan’s stock market, so I have made this decision based on his instruction.

Q.

Although the G-7 issued a statement yesterday, the yen has remained almost unchanged against the dollar, rather than rising sharply, so some people say that the impact of the statement was limited. How do you view the current market situation?

A.

That statement reflected the G-7 members’ consensus that volatile market movements have negative effects on all countries, so I believe that the absence of volatile movements indicates its effectiveness.

Q.

Amid the yen’s continuing strength, the market is apparently hoping for yen-selling intervention. What do you think in this regard?

A.

My present thinking is reflected in that statement, which we worked out through late-night negotiations over the weekend. I would like to refrain from commenting on market intervention.

Q.

Although you announced measures to stabilize stock prices yesterday, the stock market did not stop falling during afternoon trading and the rebound this morning is weak. How do you view the stock price movements that followed the announcement of those measures?

A.

Such is the market. However, it is important to change our rules in line with the U.S. and European rules as I said earlier, because if Japan alone - or any country, for that matter - is left behind, it is liable to face intensified pressure. So, we have concluded that it is very important for Japan and other countries to change their rules in line with the U.S. and European rules, and decided to bring forward the introduction date.

Q.

I would like to ask you again about a matter taken up yesterday. How do you think the monetary policy should be managed amid financial turmoil like this, although this may relate to the independence of the BOJ (Bank of Japan)?

A.

The monetary policy is managed by the BOJ based on the BOJ Act. In addition, the BOJ is maintaining close communication with the government, and we intend to conduct financial administration while maintaining close communication with the BOJ. Yesterday, BOJ Deputy Governor Yamaguchi visited me. Although we did not hold in-depth talks, I suggested the need for continued cooperation.

Q.

Under the current circumstances, there is speculation that there may be interest rate cuts in the United States and Europe. How do you think Japan should act?

A.

I think I should not reply to a question concerning speculation.

Q.

I understand that you are working on a medium-term program for securing a stable revenue source for the social security system, which, together with measures to support the people’s lives, is expected to be announced by Prime Minister Aso as early as this weekend. Could you tell me about the deliberation status of the program?

A.

It is the ruling parties that are working on this, and we will finalize the program through coordination between them and the government.

Q.

There is a media report that a timetable for the implementation of a hike in the consumption tax rate will be announced. What is your view on this?

A.

We are now working on that.

Q.

You said earlier that you will conduct investigation regarding whether there have been illegal short-selling activities in the past. Is there any evidence to suggest that there have been illegal activities in the past?

A.

We will not know whether there have been illegal activities until we make the investigation.

Q.

Regarding the tightening of the restriction on short selling, are you planning to expand the scope of regulation in addition to bringing forward the introduction date? Are you considering any additional regulatory measures?

A.

The target of the ban is naked short selling, as I said.

Q.

There was a media report that the government may consider legislation to completely ban short selling.

A.

I will not reply to a question concerning media reports or speculation.

(End)